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Edited version of private ruling
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Ruling
Subject: GST and sale of vacant land
Question
Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), will the sale of your vacant land be subject to goods and services tax (GST)?
Decision
No, under section 9-5 of the GST Act, the sale of your vacant land will not be subject to GST.
Relevant facts and circumstances
· You are an entity. You purchased a property of vacant land in the year 20XX.
· One year later, you started using the land to carry on an enterprise of cattle breeding.
· Recently, the farming operations were discontinued. The last lot of animals was sold last year. Now the property constitutes vacant land.
· You have put the property on sale. The settlement has been delayed till the receipt of a reply to this ruling request.
· You are currently not registered for GST.
Reasons for the decision
Section 9-5 of the GST Act states:
You make a taxable supply if:
(a) you make the supply for *consideration; and
(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and
(c) the supply is *connected with Australia; and
(d) you are *registered, or *required to be registered.
However, the supply is not a *taxable supply to the extent that it is *GST free or *input taxed.
* Denotes a term defined in section 195-1 of the GST Act.
Under paragraph 9-5(d) of the GST Act, in order for your supply of vacant land to be a taxable supply, you should be registered or required to be registered for GST at the time of the supply. For GST purposes we consider that a supply of land occurs on the settlement date.
As per the given facts, on the settlement date of the land, you will not be registered for GST. However, it is necessary to ascertain whether you will be required to be registered on the settlement date.
Section 23-5 of the GST Act states:
You are required to be registered under this Act if:
(a) you are *carrying on an *enterprise; and
(b) your *GST turnover meets the *registration turnover threshold.
You carried on an enterprise of cattle breeding on your land until last year. You now intend to sell the land on which the enterprise was carried on.
Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1) refers to the meaning of an entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (ABN). It is equally valid for the purposes of the GST Act. Paragraph 140 of MT 2006/1 states:
140. Carrying on an enterprise includes doing anything in the course of the termination of the enterprise. An enterprise terminates when the activities related to that enterprise ceases. Ordinarily, that occurs when all assets are disposed of or converted to another purpose or use and all obligations are satisfied. Disposal of assets may include the sale, scrapping or other disposal of the assets.
Although you have ceased breeding animals on the land, we consider that the sale of the land will occur in the course of termination of your enterprise. As a part of termination of your enterprise, you have to sell the land. Therefore, we consider that you still satisfy paragraph 23-5(a) of the GST Act. It is necessary to ascertain whether your GST turnover will meet the registration turnover threshold on the settlement date.
Registration turnover threshold
Goods and Services Tax Ruling GSTR 2001/7 (GSTR 2001/7) refers to the meaning of GST turnover including the effect of section 188-25 on projected GST turnover.
Paragraph 8 of GSTR 2001/7 provides that the registration turnover threshold is $75,000.
Subsection 188-10(1) of the GST Act states:
You have a GST turnover that meets a particular *turnover threshold if:
(a) your *current GST turnover is at or above the turnover threshold and the Commissioner is not satisfied that your *projected GST turnover is below the turnover threshold; or
(b) your projected GST turnover is at or above the turnover threshold.
Subsection 188-15(1) of the GST Act states:
Your current GST turnover at a time during a particular month is the sum of the *values of all the supplies that you have made or are likely to make during the 12 months ending at the end of that month other than:
(a) supplies that are *input taxed; or
(b) supplies that are not for *consideration (and are not *taxable supplies under section 72-5); or
(c) supplies that are not made in connection with an *enterprise that you *carry on.
Subsection 188-20(1) of the GST Act states:
Your projected GST turnover at a time during a particular month is the sum of the *values of all the supplies that you have made or are likely to make, during that month and the next 11 months other than:
(a) supplies that are *input taxed; or
(b) supplies that are not for *consideration (and are not *taxable supplies under section 72-5); or
(c) supplies that are not made in connection with an *enterprise that you *carry on.
Section 188-25 of the GST Act states:
In working out your *projected GST turnover, disregard:
(a) any supply made or likely to be made by you by way of transfer of ownership of a capital asset of yours; and
(b) any supply made or likely to be made by you solely as a consequence of:
i. ceasing to carry on an *enterprise; or
ii. substantially and permanently reducing the size or scale of an enterprise.
In selling your vacant land, you will make a supply by way of transfer of ownership of a capital asset of yours. Also the supply will be made as a consequence of ceasing to carry on your enterprise of cattle breeding. Therefore, in ascertaining your projected GST turnover on the settlement date, the sale of the vacant land will be disregarded. Accordingly, on the settlement date, your projected GST turnover will be less than the registration turnover threshold. Consequently, on the settlement date, your GST turnover will not meet the registration turnover threshold and you will not be required to be registered for GST.
Conclusion
As you will not be registered or required to be registered for GST on the settlement date, you will not satisfy paragraph 9-5(d) of the GST Act. Therefore, the sale of your vacant land will not be a taxable supply. Accordingly, it will not be subject to GST.
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